Foreclosures May Jump As ARMs Reset

Sounds like the "Perfect Storm". Combine increased interest rates, large numbers of ARM's, and falling home prices, and you've got the beginnings of a disaster that could make the Depression look like a minor correction. I'm convinced that some of the gains in the Stock Market recently have been due to investors going away from real estate and back into stocks. It could get ugly.


http://biz.yahoo.com/ap/060619/foreclosure.html?.v=2


"NEW YORK (AP) -- In 2003, Anita Britten refinanced her two-story brick cottage in Lithonia, Ga. using a hybrid adjustable rate mortgage, or ARM. Her lender reassured her that she could refinance out of the riskier loan into a traditional one when her interest rate started to reset.

Three years later, Britten can't get a new mortgage and her monthly payment has jumped by a third in six months. She can't afford her payments and may face foreclosure if her financial situation doesn't change.

As more ARMs adjust upward and housing prices begin to dip, many Americans like Britten can't refinance and are finding themselves trapped in too-high monthly payments. For those who can't make their payments, foreclosure is the only way out.

Falling home values are also affecting homeowners' ability to refinance into a traditional 30-year fixed rate loan to avoid foreclosure. In 2002, Christopher Jones, 32, refinanced into a hybrid ARM with plans to refinance again when the rate started to readjust. At the time, his downtown Atlanta house appraised for $108,000. Now, his monthly payments have shot up, but Jones can't sell his house for more than $84,000 and he can't get an appraisal for more than $85,000."

One line from the article that is priceless: "Owning a home is the American dream, but losing one is the ultimate nightmare."

and heavy consumer debt are the only things that have been keeping the economy propped up for a while now. Of course it couldn't last forever.

Forget avian flu and al-qaeda, this is what everyone needs to be preparing for.

have helped ensure that we have plenty of serfs to wait on the masters when the bills come due.

Recent change in the Bankruptcy laws were targeted toward the Middle Class and poor.

Some folks saw that equity in the home and treated it as if they'd won the lottery, buying Hummers, Pools, room additions, etc.

Think how much equity and buying power we will lose to our economy just if the housing values remain level. Hate to think what happens if values drop significantly. Already, homes in my neighborhood that used to be gone in hours (most of the time for above asking price) are sitting, and sitting, and sitting, and sitting on the market. Add the boom in new construction, and we potentially have an oversaturation of supply with little demand (investors aren't buying real estate much anymore). Throw in all the forclosures that will flood the market with more supply, and we're potentially talking pitchfork time, or a return to the "poor houses".

where do all the workers who are doing the construction jobs go, back to Mexico and Central America?

I just got a great new job.

:rofl:

Thanks everybody who got ARMs!

Great way to run a country.

Is it because their credit is bad? Or is it because their homes are now worth less than what they bought them for?

Anytime we get into a discussion on ARMs, someone seems to always pop up with "well, they can always refinance".

... that you (a) take a new loan out at CURRENT interest rates, and (b) use the new loan to pay off the ORIGINAL loan.

So if the CURRENT interest rates are higher than the ORIGINAL ones, you're shooting yourself in your own foot - right?

And if interest rates are on the rise (on your own loan via ARM, or in general via the prime), no bank is gonna even OFFER a better deal than the one you're already locked into. Why would they?

Take all of the above with several grains of salt - I've never had any money, let alone a house-sized loan. :)

but one of the folks in the article had taken out some student loans, and was probably not a good credit risk so they couldn't re-fi. Another guy in the article saw the value of his home go down. Although that is rare these days, I think you'll see more and more of it, or value will "flat-line". If anything we will probably see a much more modest value increase of 4-6%, not the 60-80% we've seen in recent years in some areas.

Also, (and please econ majors let me know if I'm wrong) some folks have taken out all of the equity, or a large chunk of it, to make purchases and "keep up with the Jones'". Since even to re-fi, unless going VA or FHA you have to come up with 20% down, plus any additional closing costs and fees. Some folks think you just re-fi your house, but you don't. You actually have a closing and may even be required to obtain appraisals, etc.

People that are scraping by, don't have the capital to cover all of the closing costs on a new loan, and they find that they should have looked at "what I could afford" vice "how much I qualify for".

I may be way out in left field, but these could be some of the reasons people can't re-fi.

getting a mortgage.

They shouldn't sign unless they knew how the ARM works. It is smart to assume that after the promotional period the rate will rise to the max allowable during that term, generally 2 points. They should then be certain that when that time comes they'd be able to still afford the payment before they ever go ahead and sign on the line. And when the rate adjustment time comes, there really shouldn't be a surprise.

Mine just jumped the 2 points last month. It didn't come as a surprise to me. I expected it to come at that time 3 years ago. Sure, it sucks I'm paying more now, but I made certain back then that with all things equal I'd be able to afford the increase when the time came. So no surprises here.

I completely agree. I hate seeing those online ads with the mortgage calculators that say "how much home can you afford?" and don't take any of this into consideration.